Consolidated Appropriations Act, 2020
On December 20th President Trump signed the Consolidated Appropriations Act (the Act) with little fanfare. The Act extended some tax provisions that were due to expire, repealed some provisions, but most notably made changes effecting retirement plans. Here is a brief list of some of the changes that may impact you:
The required beginning date for distributions from retirement plans and IRAs has changed from age 70 1/2 to age 72 with respect to individuals who attain age 70 1/2 after 2019.
Effective for tax years beginning after 2019, the age limit for making contributions to traditional or Roth IRAs has been eliminated. If you have earned income you can continue to make contributions to an IRA even if you are also required to take distributions.
Individuals who have reached age 70 1/2 can still make charitable contributions directly from their IRA account, which results in larger tax savings than making the contributions from non-IRA accounts. However, the tax-free portion must be reduced by any deductible IRA contributions made.
Distribution requirements for plans after the owner dies have changed, making it even more important to review who the designated beneficiaries and contingent beneficiaries are on your retirement accounts:
If there is no named beneficiary, your retirement account must be distributed to your estate within 5 years, making it not only taxable in that period but also subject to creditor claims. Be sure you have named beneficiaries and contingent beneficiaries.
The Act requires that a decedent's entire retirement account must be distributed to the designated beneficiaries by December 31 of the 10th year following the owner's death, except for "Eligible Designated Beneficiaries". This provision is generally effective for individuals dying after 2019.
"Eligible Designated Beneficiaries" means 1) the surviving spouse, 2) a child of the decedent that has not reached the age of majority, 3) a disabled individual, 4) a chronically ill individual, or 5) an individual who is not more than 10 years younger than the decedent.
When a minor child who is a designated beneficiary reaches the age of majority, the inherited retirement account must be distributed within 10 years.
Up to $5,000 may be withdrawn from retirement plans for child birth or adoption expenses without being subject to a penalty (although it will still be subject to tax). For a married couple, each spouse may receive a maximum of $5,000 from their own account.
Effective for taxable years beginning after 2019, businesses will have until the extended due dates of their tax returns to adopt a pension, profit sharing, stock bonus or annuity plan. Previously only SEP plans could be adopted after the end of the year.
Filing penalties for retirement plans have increased drastically. The penalty for failing to file a Form 5500 on time increased from $25 to $250 per day, the maximum increased from $15,000 to $150,000. The penalty for filing Form 8955-SSA increased from $1 to $10 per day per participant with the maximum increasing from $5,000 to $50,000.
Distributions from 529 plans can now be made for fees, books, supplies, and equipment required for an apprenticeship program registered and certified with the Secretary of Labor.
Higher education expenses for 529 plans now includes up to $10,000 paid as principal or interest on a qualified education loan for the designated beneficiary or their siblings. The $10,000 limitation is a lifetime limitation for each individual.
The income exclusion for discharge of qualified principal residence indebtedness of up to $2,000,000 has been extended through 2020.
The deduction for qualified mortgage insurance premiums has been extended through 2020.
The "Kiddie Tax" on the unearned income of children will revert back to the pre-TCJA law, however taxpayers can elect to use either the new or old laws for 2018 and 2019.
If a state or political subdivision provides a reduction of property taxes to a member of a volunteer firefighting or emergency medical services organization, those amounts are excluded from income. Expense reimbursements of up to $50 per month are also excluded. This provision is for calendar year 2020 ONLY, subject to future extensions.
The Act extends the credit for qualified electric motorcycles through 2020. The credit is 10% of the cost of a qualifying plug-in electric motorcycle with a battery capacity of at least 2.5 kilowatt-hours and capable of achieving speeds of at least 45 miles per hour. The maximum credit is $2,500.
The requirement that tax exempt organizations pay tax on parking fringe benefits provided to employees has been retroactively repealed.
The 40% excise tax that was to apply to high cost employer-sponsored health coverage ("Cadillac Plans") starting in 2020 has been repealed. The provision that the shared responsibility tax for an individual failing to carry ACA approved health insurance is eliminated after 2018 remains in place
A word of caution: this is a very brief summary and does not include all of the details that may impact your individual situation. Please contact us if you would like more information.
About Lewitz, Balosie, Wollack,
Rayner & Giroux, LLC
We provide accounting, tax, and financial services to individuals, businesses, nonprofit organizations, estates, and trusts. Our services include tax return preparation, software consulting, and compilations, reviews, and audits of financial statements. We have been located in the shoreline community of Old Saybrook, Connecticut for over 60 years. Feel free to contact us if we can be of service. We can be reached at 860-388-4451. Our website is www.saybrookcpas.com
IRS Circular 230 Disclosure
Tax advice contained in this communication, unless expressly stated otherwise, was not intended or written to be used, and cannot be used, for the purpose of (i) avoiding tax-related penalties under the Internal Revenue Code or (ii) promoting, marketing or recommending to another party any tax-related matters addressed herein.